ECONOMICS
BALANCE OF PAYMENTS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Inverse
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Direct
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One to one
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No relationship
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Detailed explanation-1: -The demand for foreign exchange varies inversely with the exchange rate.
Detailed explanation-2: -Exchange rate of foreign currency is inversely related to the demand. When price of a foreign currency rises, it results into costlier imports for the country. As imports become costlier, the demand for foreign products also reduce. This leads to reduction in demand for that foreign currency and vice-versa.
Detailed explanation-3: -(b) The foreign exchange rate is determined by the demand and supply.
Detailed explanation-4: -An increase in the demand for a currency creates a rightward shift of the demand curve, ultimately causing a rise in the exchange rate and increasing the value of the currency demanded. Conversely, a fall in demand would shift the demand curve left and lead to a decline in the currency value.